Protecting your interests in business partnership

June 9, 2013 : kaine Agary (pocketlawyer@dtalkshop.com)

Kaine Agary

Nobody goes into a relationship, business or otherwise, with the expectation that it will come to a sour end. We expect that we will grow; our dreams may take on new dimensions; new opportunities will come up; challenges may threaten our advancement, etc., etc., and all these may lead partners on divergent paths, but at the end of the day, we expect that the friendship and common interests that bring us together as partners will keep bitterness and rancour at bay in the eventuality of a split.

Sadly, that is not always the case. There are too many stories of friends becoming enemies by the end of their business relationship. The thing with business partnerships is that there is money involved, which is probably why relations, once sweet, turn sour between friends in business.

A lot of partnership agreements (particularly among small businesses and young start-ups/entrepreneurs) are concerned with shares – what is my share in the business? What is my share of the profits? Very few, at the onset, are concerned with what happens to the business and its assets at the termination of that partnership. Suggesting such considerations to a group of people trying to unite as business partners is akin to suggesting that couples in love enter into a pre-nuptial agreement before they get married. It is like predicting doom, suffocating the union with a blanket of gloom. But the reality is that dealing with the ‘what if’ questions are necessary.

When Tina Turner divorced her first husband, Ike Turner, she walked away with nothing but her name. The name Tina Turner was the brand name for Anna Mae Bullock, a product of Ike Turner’s band and marriage to him. So when Tina faced the judge in her divorce case, she asked to keep the name. It didn’t matter that Ike wouldn’t give her anything material, she just wanted to be able to use the name Tina Turner.

What’s the big deal, and how does this relate to the topic, you may ask. The name came with goodwill that was important to and could affect ‘Miss’ Turner’s ability to earn an income.

If you hang out around business types, have the inside scoop to some city gossip, or just listen to the business woes of some friends and friends of friends, you will definitely hear tales of business partnerships gone bad, leaving one party, sometimes the originator of the business, out in the cold. For example, it could be that someone starts a small business, builds the business and the credibility of the business name and the business looks attractive to investors. Investors come in, own majority share in the business and decide that Mr. small business originator is no longer an asset to the business and kick him out with nothing, not even the name he built so that maybe he could even set up shop somewhere else and rebuild using whatever leverage the old name can get him.

How is this possible? In the example presented, it could be either that Mr. small business originator made a big mistake by not registering the business name, or that he did not give his lawyer his partnership contract/agreement document to look through before he signed it.

Some years ago, I received an email from a former business partner of a friend of mine, the text of the message started like this: ‘You’re receiving this email because of your relationship with (Name of Business) and (Name of said former business partner)’. I don’t remember what the rest of the email said, but all I could think of after reading the entire message was, Drama!!! This move was obviously to stake her claim to the business’s client list, associates, etc.

While the excitement of a prospective business partnership is still on, before you sign the dotted line, it is important to ask yourself a couple of questions:

Do I have the same long term vision as my potential partner?

Are we on the same page about how to handle the finances? In what direction we want to grow, business practices, etc?

Is the partnership mutually beneficial?

This is where you allow your selfish side rule. You must gain something from a partnership: additional skill, resources, or just simply economies of scale advantages.

Can I be intimate with my potential partner?

A partnership forces intimacy on all parties involved. You must share information, make yourself and your resources available for the benefit of the partnership and spend a lot of time together ensuring that the two entities function seamlessly in the partnership. When partners are intimate and committed to the partnership, then issues of sabotage and conflict of interest rarely arise.

And, very importantly, what happens should this union go belly up for whatever reason?

Protect your goodwill and clients. Lawyers have this nice tool that they call ‘restraint of trade’ clauses that can be included in your partnership agreement. Restraint of trade clauses prevent former employees/associates from poaching your clients or setting up a competing business, and control their use of trade secrets after their relationship with you ends. These clauses must be reasonable (the time period, geographical area, etc) under the circumstances otherwise they cannot be enforced. A lawyer can advise you on what is reasonable in your line of business.

Partnerships are not always bad news. Recently, I met a woman who was in a consulting partnership for a number of years. When new opportunities came up for her and she wanted to move in a new direction, they agreed to split the business – she, and her new company, took the section of the business dealing with the public sector and the partner took the rest.

The general rule, though, remains; don’t go into a partnership with your heart. Use your head instead. Business is business!

Columnists

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INEC's Chairman, Attairu Jega cautioning Orubebe over his conduct during the release of the Presidential election results.